What would John Maynard do?

John Maynard Keynes (right) and Harry Dexter White at the Bretton Woods Conference. Image credit*

John Maynard Keynes, who helped design and implement the post World War II global economic system known as Bretton Woods , has cast a long shadow. He devised the ways in economists still think about counteracting recessions through government policy.

And with the world economy now in crisis, many are wondering “what would Keynes do?” That’s the question six economists and writers pondered recently in a symposium sponsored by the RSA entitled The Age of Austerity: Keynes and the Crisis (website, iTunes ).

The two most interesting presentations are from the first speaker and the last speaker in the program. The lead speaker is Robert Skidelsky, the author of a magisterial three volume biography of John Maynard Keynes. He contends that Keynes’ work holds three important insights for us to ponder.

1. The core of Keynes’s worldview is “the existence of uncertainty,” and the understanding that no amount of “pretty, polite economics” can abolish uncertainty. Modern financial techniques created the illusion that borrowing was riskless, and many woke up in surprise when risk came roaring back.
2. Economies wounded by financial shocks, such as the current bursting of the housing bubble, can stay depressed for a long time, in a state known as “under-employment equilibrium.” That’s why governments need to intervene.
3. Keynes was a strong advocate of proactive governmental policy which would attempt to prevent financial booms and busts, and not merely react after the fact.

The final speaker on the panel is Martin Wolf, chief economics commentator at the Financial Times, who sees the current financial crisis as an extremely large “emerging market crisis.” Like other such crises in the developing world, the current financial collapse started with “a flood of capital into a favored destination, overvalued exchange rates, huge current account deficits, and very large asset price bubbles.” It ended when bankers suddenly stopped financing “everything, no matter how ridiculous,” and refused to finance “anything, no matter how sensible.”

Wolf believes that the succession of emerging market crises, which culminated in the current uber-crisis, makes it clear that we need a new worldwide financial architecture, hearkening back to the late-lamented Bretton Woods system which Keynes helped devise.

Other speakers include journalist John Naish, who suggests that we would be better off without economic growth and money lenders (maybe he was the comedy relief?), and economist Andrew Lilico who argues that taxcuts are a better way to fight the global recession than government spending.

(Hat tip to an Anne at Anne is a Man for pointing out this podcast.)

*Image credit: Wikipedia. Public domain.

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